The chief administrator says cracking down on banks, as protesters wish, could cost the strapped city at least $58 million. Some council members worry that L.A. can ill afford such a move.

Los Angeles elected officials have been assiduously wooing the Occupy movement, which inspired protesters furious at Wall Street to take over the grassy area around City Hall downtown — and public spaces in cities across the nation.

Mayor Antonio Villaraigosa gave 100 ponchos to soggy demonstrators during the last big rain. Council President Eric Garcetti told campers in the tent community to "stay as long as you need to." And officials have quietly allowed the urban camp-out to continue, despite a law prohibiting overnight stays at city parks.

But council members who cheered on Occupy Los Angeles' larger themes are growing skittish about one of the demonstrators' main demands: cracking down on wrongdoing by banks.

Last week, lawmakers asked city analysts to continue developing a plan to use the city's financial heft to punish misbehaving financial institutions. On Tuesday, City Administrative Officer Miguel Santana issued a dire warning: Such a move could cost the city at least $58 million.

Severing agreements with major lenders could trigger sizable termination fees and lead to higher interest rates, Santana said. That could in turn complicate financing for an array of city initiatives, from replacing deteriorating sewers to rebuilding part of the Convention Center to make way for an NFL football stadium, he said.

Those arguments have not swayed Councilman Richard Alarcon, whose 2-year-old "responsible banking" ordinance has found new life and a groundswell of support in the Occupy L.A. movement. Alarcon said Santana is "pandering to the banks" and "out of sync with the social dynamic" that has emerged across the nation in recent weeks.

The northeast San Fernando Valley councilman said his proposal, which would rate banks based on their commitment to social responsibility and local communities and deny business to those who fail to measure up, could save the city money.

He noted that Los Angeles sued dozens of financial institutions in 2008, alleging that they engaged in fraud that cost the city tens of millions of dollars. One suit alleged that Merrill Lynch & Co., Morgan Stanley and Bank of America Corp. conspired with other financial firms to rig the competitive bidding process for services involving management of the city's debt. The cases are pending.

"I think it costs us money to allow them to defraud us. The question in my mind is how much did they rip us off?" he said. "If these companies have ripped us off, we should at least put them through additional hurdles before they can do business with us again."

But Santana's warnings are resonating at City Hall.

Councilman Bernard C. Parks, who represents much of South Los Angeles, said he did not want to give up scarce dollars — and spark a new round of layoffs — to achieve a moral victory. "I don't think we ever want to stand here at the mike and say to the public, 'We showed Bank of America. We just cost you $2 million because we didn't use them,' " he said.

Even some who favored the measure voiced doubts. Councilman Paul Koretz last week backed passage of a responsible banking measure, saying the nation is "going to hell in a handbasket and it's time people spoke out about it." On Monday, he offered a more muted message.

"If it costs us $20 million or $30 million or $40 million to do the right thing, then we're probably doing the wrong thing," he said.

Occupy L.A. has grown steadily over the last month. There were 366 tents outside City Hall on Tuesday, and only four minor arrests have been reported in the last 18 days, city officials said. Organizers said 700 people stay each night, with that number swelling during daylight hours.

Many of the demonstrators poured into council chambers last week to speak in favor of Alarcon's banking measure, talking of banks that received bailouts while families lost their homes.

Lisa Clapier, a 46-year-old protester who staffed the Occupy L.A. media tent Tuesday, said a short-term financial hit to the city would be worth it if it sent a message to banks to behave more ethically. Clapier said she and other protesters are prepared to accept millions of dollars in cuts to city services in exchange for long-term change.

"You've got to look at it in the long term," she said. "We need banking reform. We don't have a choice."

Santana said he sympathized with the protesters' concerns and probably would have joined them 25 years ago. But he argued that rating banks on their level of social responsibility is not a core mission of a financially strapped city. Severing ties with major banks, he warned, could send borrowing costs soaring.

"We strongly urge the council to maintain, as their primary duty, getting the best deal for taxpayers," he said.

The council's budget committee is scheduled to take up the banking proposal next month. Until a decision is made, Santana is calling on the council to suspend any new bond financing to avoid more potential fees and other costs that could flow from a revised banking policy.

That would mean halting plans to issue $110 million in short-term debt. The borrowed money would help pay for a new reptile exhibit at the Los Angeles Zoo, parking structures and replacement of the 6th Street Bridge over the Los Angeles River between downtown and Boyle Heights.